No health insurance? The IRS may keep your tax refund in the future?

Andrew Freiburghouse |
April 21, 2010

According to reports from the Wall Street Journal and Fox News, the IRS may withhold or delay tax refunds in future years for taxpayers who do not buy health insurance. Is it time to get your tea party on and protest the constitutionality of this law, or is it time, instead, to just buy some affordable health insurance?

No health insurance = late tax refund?

Health insurance is already a semi-major issue within our income tax system. Self-employed taxpayers can use health insurance as a tax deduction, while many other taxpayers do not have to pay income tax on the value of the health insurance plans they get through an IRS-sanctioned employer plan.

The new health insurance reform paradigm, also known as ObamaCare, further involves the Internal Revenue Service (IRS) in the health insurance marketplace. If you don't check the box on your income tax return that states that you have health insurance, or if you check the box that you have medical insurance and you really don't, the IRS could withhold or delay your tax refund. This much is true.

This may be unacceptable to many taxpayers, who want fast tax refunds like water wants to run downhill. The maximum Earned Income Credit, after all, was recently raised to $5,657, which means that a single person at an annual income of $14,000 filing with three child dependents receives about $7,500 as a tax refund.

That's a big tax refund to withhold or delay, no?

Will the individual mandate last?

The so-called "individual mandate," the idea that people should be required to purchase health insurance, may be challenged in court. The end run around this problem, for proponents of health insurance reform, may be to make certain that affordable health insurance is available for purchase. The possible dislike of the IRS would then serve as a small stick, as opposed to the enticing big carrot, of everyone having health insurance.

Whether or not everyone having health insurance proves to be a good thing for the medical care delivery system of the United States remains to be seen. But this is the plan: everyone should have health care insurance and at a rate they can afford. Those who can't afford it will be given, guess what, tax credits.

The bigger picture is that the IRS may have a necessary role to play in enforcing the individual mandate--and that may not change anytime soon.